Kevin Matras looks at sales growth and increasing profit margins. A powerful combination for big returns. Stocks in this week’s article are CoStar Group, Inc. (NASDAQ: CSGP), Mitcham Industries, Inc. (NASDAQ: MIND) and Shanda Interactive Entertainment, Inc. (NASDAQ: SNDA). Click here for the full story exclusively on Zacks.com: http://at.zacks.com/?id=109.
Screen of the Week written by Kevin Matras of Zacks Investment Research:
Being in the thick of earnings season, you’ve probably heard a lot about sales and margins. While everybody understands sales, margins might bring up a few question marks.
Sales are THE most important thing to a company. Everything else stems from that. Without sales, there really wouldn’t be anything else to analyze. And sales growth numbers show how a company is growing.
However, just because sales are increasing doesn’t always mean that profits are increasing too. Sales at the expense of profits does not work. So paying attention to profit margins is the next thing to look at.
Margin is simply a ratio, and the calculation is: Net Income divided by Sales. So if a company’s margin is 15% for instance, that means the company’s net income is 15 cents for every $1 dollar of sales it makes. But if a company’s expenses are growing faster than their sales, this will reduce their margins.
In general, a company with increasing margins is becoming more profitable and is better managed, i.e., their costs are under control.
- 12 Month Trailing Sales Growth (Current / 1 Quarter Ago) greater than or equal to their relevant Industry average. (Looking for the top companies in their industries.)
- Current Net Margin greater than or equal to 5 Yr. Avg. Net Margin. (Steady to increasing Net Profits is what we’re after.)
- Zacks Rank equal to 1. (The Zacks Rank is one of the best, if not the best, rating system out there. One of the main components to the Zacks Rank is Earnings Estimate Revisions. The whole idea being, companies that receive upward estimate revisions have a tendency of receiving even more upward estimate revisions. And this helps paint a solid picture moving forward.)
Here are three stocks that pass the screen this week:
|CSGP||CoStar Group, Inc.|
|MIND||Mitcham Industries, Inc.|
|SNDA||Shanda Interactive Entertainment, Inc.|
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